After more than three decades of high growth that was based on an exploration of its low-wage advantage and a relatively favorable demographic pattern in combination with market-oriented reforms and openness to the world economy, China is at a crossroad with a much higher wage and a shrinking work force. Future growth by necessity would have to depend more on its ability to generate productivity increase, and domestic innovation will be an important part of it. In this presentation by Dr. Xiaobo Zhang, based on research with colleagues Shang-Jin Wei and Zhuan Xie, assess the likelihood that China can make the necessary transition. Using data on expenditure on research and development, and patent applications, receipts, and citations, they show that the Chinese economy has become increasingly innovative. In terms of drivers of innovation growth, they find that embracing expanded market opportunities in the world economy and responding to rising labor costs are two leading contributing factors. On the other hand, they find evidence of resource mis-allocation in the innovation area: while state-owned firms receive more subsidies, private firms exhibit more innovation results. Innovation can presumably progress even faster if resource mis-allocation can be tackled.
The presentation was given at the International Consortium for Applied Bioeconomy Research Conference on June 15th and can be found on slideshare while the paper is available via open-access.